Fire Safety: Grenfell Tower, Service Charges and the return of Negative Equity?

Fire Safety: Grenfell Tower, Service Charges and the return of Negative Equity?

A recent article published by the Guardian, raised yet further repercussions of the Grenfell Tower tragedy. A homeowner in a housing complex in London with similar cladding to Grenfell has been told by a surveyor that her £475,000 home is now worth just £50,000. No doubt this is relevant to many other high-rise blocks in the country with similar cladding.

Inevitably, the condition of an unsafe building is likely to have a huge impact on potential buyers. Many such buildings may be uninsurable until remedial works are done, and may not be mortgage-able in the near future. Most potential buyers will be put off totally, some who remain interested will no longer be able to fund a purchase without a mortgage. Anyone who can still buy will want a vast reduction in the purchase price, potentially leaving leaseholders stuck in an unsellable property due to significant negative equity. Remedial works may alleviate this problem, but only time will tell.

Many freeholders are in the process of removing Grenfell style cladding, or at least investigating what steps they need to take to reduce the fire risk. As a temporary security measure, some freeholders are investing in 24-hour fire wardens or “waking watch”. All of this is undoubtedly at a huge cost.

Who will have to pay for the costs?

Already there have been a number of cases going through the First Tier Property Tribunal, in which the landlord has sought a declaration that it can pass costs down to their leaseholders.

In one such case, the tribunal confirmed that the freeholder was able to pass down costs exceeding £15,000 per month to leaseholders for “waking watch” fire wardens. In another, the tribunal has confirmed the landlord’s ability to pass down the costs of removing and replacing dangerous cladding, all be it with the final costs yet to be determined.

While each such case is heavily dependent on the terms of the individual leases, it seems likely that post Grenfell, the tribunal may be more willing to allow landlords to pass down costs, with tribunals accepting:

  • That a lease requiring the landlord to keep the building in “good condition”, or similar wording, must require a landlord to replace dangerous fire risk cladding. As the landlord is obliged to do the works, it would likely also be entitled to re-charge the costs to leaseholders;
  • That building insurance may be invalidated by the building being in a fire risk condition, and the landlord’s obligation to keep it insured allowed it to pass down costs of works that were needed to make it insurable;
  • That a clause requiring a landlord to comply with statute and regulations would oblige the landlord to carry out fire safety works, where the local fire authority gave enforcement orders for the work. Then pass down the costs of compliance.

Are leaseholders automatically liable for the cost of works?

The cases before the tribunal so far have found that under the terms of the lease, the leaseholders are liable. However, not all leases are the same, and just because a clause allows for re-charge does not automatically mean it is reasonable to re-charge 100% of those costs.

In the case of Grenfell, 5 major issues with the refurbishment works were reported by the Evening Standard, who have obtained a draft report into the fire. Where initial construction or subsequent refurbishment works have caused or contributed to the fire risk, there is every reason to doubt that it would be reasonable to re-charge full costs, or indeed any costs in some circumstances.

Leaseholders may well also have valid claims for damages against their landlord for poor, defective or ill-advised works. Such claims could contribute towards or cover the cost of remedial works, or even the devaluation of the property, where the landlord’s own actions have caused the losses. There also remains hope that the costs of remedial works can be covered by warranties, such as new build NHBC warranties.

What actions should a landlord take?

Landlords need to consider first and foremost what works are needed to safeguard their leaseholders. They need to take into consideration the funding of such works, not just whether costs can be re-charged under the terms of the lease(s), in compliance with s20 consultation, but also whether the re-charge of such costs are reasonable.

Landlords also need to consider whether their own contractors could be in breach of a contract for defective or unsafe works, and whether they need to taking action against such contractors. Leaseholders may well take issue on the reasonableness of service charges, if landlords have not attempted to hold faulty contractors to account.

If you have any queries relating to fire safety, whether as a leaseholder wishing to challenge large services charges, or a landlord wanting to know what next steps to take, please contact Alex Wyatt on 01494 478676 or email amw@blasermills.co.uk